Broadcom secures extended Apple supplier role through 2031 with long-term custom silicon deal.
Broadcom's July 6, 2026 announcement of an Apple ASIC supply agreement extension through 2031 fundamentally shifts the investment thesis. Apple represents roughly 20% of Broadcom's annual revenue, and the persistent bear case centered on Cupertino designing out the company's wireless and RF content. That risk is now retired for five years, establishing a high-margin, predictable baseline that underwrites the AI semiconductor portfolio on top.
The AI growth trajectory is the second pillar. In Q2 FY2026, AI semiconductor revenue reached $10.80 billion, up 143% year-over-year, with Q3 guidance of $16 billion representing over 200% year-on-year growth. CEO Hock Tan stated on the earnings call: "For the full year 2026, we expect to achieve AI semiconductor revenue of $56 billion, up approximately 180% from fiscal 2025." Visibility extends further: fiscal 2027 AI revenue is expected to exceed $100 billion, backed by 10 gigawatts of planned shipments in 2027 with additional capacity in 2028. This shipment target represents booked capacity from six named customers.
The financial foundation is equally compelling. Q2 free cash flow reached $10.26 billion, representing 46% of revenue, with an adjusted EBITDA margin of 69%. Cash on the balance sheet doubled to $19.63 billion while total liabilities fell 3.76% year-over-year. Capital returns have been aggressive: $7.8 billion in Q1 buybacks under a $10 billion authorization, plus a $0.65 quarterly dividend representing the fifteenth consecutive annual increase since fiscal 2011.
Valuation appears reasonable for a compounder: a forward P/E of 20 against net income growth of 87.51% yields a PEG of 0.4. Analyst consensus target stands at $523.73, with 44 of 48 covering analysts rated Buy or Strong Buy.
The primary risk is hyperscaler concentration. A handful of customers drive the AI ramp, and any capex reduction at Google, Meta, or OpenAI would impact near-term results. However, the contract commitments detailed on the earnings call provide substantial protection: multi-generational Google TPU agreements, 5 gigawatts of Anthropic compute beginning in 2027, OpenAI's 1.3 gigawatts ramping to 10 gigawatts by 2029, and Meta's 3 gigawatts through 2028. These are signed contracts, not projections. Layered beneath the de-risked Apple baseline, contractually secured demand that extends past this decade substantially mitigates concentration risk.